Agency for specialized monitoring (ASM) Audit & Its Importance in Clean Credit Culture
Public sector banks (PSBs) have made significant progress with respect to improvement of credit underwriting and monitoring process in the PSB Reforms EASE Agenda. Appointment of Agencies for specialized monitoring (ASM) was one of the major key reforms under EASE 3.0 Agenda “Smart, Tech-enabled banking for aspiring India”. Which emphasizes the Fintech partnerships and analytics-driven risk management as well decision support system in banking.
Due to increase in frauds like Nirav Modi and Vijay Mallya scams, bank’s credibility was at high risk. And, the amount of NPAs are increasing drastically in almost every bank in India. RBI and IBA took the stand and introduced a new reform.
In October 2018, Indian Bank’s Association (IBA) has released a framework for the appointment of ASMs qualified for monitor the technical, financial and legal aspects of project loans above ₹250 crore. ASM stands for agency for Specialized Monitoring. ASM is an external agency which is introduced to monitor large credit exposure advanced by Bank/consortium of banks.
ASM audit involves complete credit assessment of the borrower including assessment of his ability to repay the loan. It also involves monitoring the financial operations of the borrower to track or identify any diversion/misuse of the borrowed fund. For this purpose, ASM team prepares a periodical ASM report and submit it to the lender bank. It allows banks to prevent/minimize money laundering cases, mis utilization of borrowed funds, identification of loan accounts which may convert into NPA.
ASM is appointed by Lender bank/Lead bank in case of consortium of banks. ASM has two major responsibilities, one is monitoring and other is reporting to the Lender bank. Bank may appoint two different ASMs for monitoring and reporting purpose.
Under the monitoring process, the borrower is mandated by the bank to take approval from the ASM team before spending the amount sanctioned by the lender bank. Borrower has to send the request for the approval of payments before ASM. ASM will approve the payment request of the borrower if the conditions laid down by the lender are fulfilled.
Following procedures to be performed, to check the genuineness of the payment request.
The above procedures are to be performed for every payment which is to be made out of the monitored credit facility. Bank may set the minimum amount of payment for which approval of ASM team is not required. This process is followed by ASM team and Borrower on regular basis, which reduces the risk of mis-utilization of funds and it enables banks to make ground level surveillance on the financial activities of the borrower.
Under the reporting process, ASM team prepares a quarterly ASM report in the form of questioner during the period covered under the engagement terms with the lender bank. The broad scope of ASM report is specified by the IBA as follows which may be extended by the lender bank as per industry specific requirements of the borrower. –
As per the report of press information bureau, after deployment of agencies for Specialized Monitoring and proactively monitoring, slippage into NPA has reduced from 3.90 lakh crore in year ending March 2018 to 1.88 lakh crore in year ending December 2019 and the amount of NPAs has been reduced as compared to previous years.